Barney Frank On The Financial Crisis, 10 Years Later

Today marks 10 years since Lehman Brothers collapsed. It was a signal moment in the financial crisis that nearly spun out of control. One response was the Dodd-Frank Wall Street Reform and Consumer Protection Act, which became law in 2010 - a huge law that called for breaking up banks if they were determined to be too big to fail so that an entire global economy would not be at risk. It also helped create the Consumer Financial Protection Bureau, but the powers of that agency have recently been curtailed by the Trump administration. The Frank of that bill, of course, is Barney Frank, who joins us now. Mr. Frank, thanks so much for being with us.

BARNEY FRANK: You're welcome.

SIMON: Ten years later, with the advantage of historical hindsight, what do you think was at the root of the financial crisis?

FRANK: Two major changes in the way in which financial activity was conducted. One was, frankly, made possible by information technology. In 1970, if you borrowed money, you borrowed it from a bank, which you would have to repay. That is, you got a mortgage, and every month, you sent them a check. And then banks began to develop something called securitization. Banks would make hundreds, thousands of loans but instead of waiting for each borrower to repay that loan, they would bundle them into securities, and then they would sell to investors a package of loans, and the mortgage repayments then went to the people who owned the securities. The problem is that if I'm lending you money and I'm depending on you to pay me back every month, I'm going to be careful about who I lend to. But if I am making thousands of loans, I no longer have an interest in whether or not they're repaid.

Secondly, around the same time and related to this, large amounts of money started coming into the United States not from banks. You had the oil-producing countries. You had Asian countries with large balance and payments surpluses (ph). You had all kinds of money coming in that was available for loans outside the banking system. So the combination was that the discipline in the lending business of the borrower having to prove his or her credit worthiness disappeared. A whole lot of bad loans were made.

SIMON: Mr. Frank, how do you - how do you react to the criticism that's been made over the years that when Ben Bernanke and Henry Paulson and Tim Geithner and others got together and figured out what amounted to a rescue package for the U.S. economy, it rescued Wall Street but not regular citizens.

FRANK: Well, that's wrong. What they rescued was the economy. Now, it is true that the direct beneficiaries in the first instance were the banks. Although if the banks aren't working, you know who is particularly hurt? The people who live paycheck to paycheck. Look; if the bank system failed, Jamie Dimon, the CEO of JPMorgan Chase - a perfectly nice man, I don't mean to single him out - but he had enough money, he wouldn't have starved. He would have - he would have found a way to support himself. It's the people living paycheck to paycheck who suddenly weren't getting a paycheck or had no place to cash it or no ATM, they would have been hurt. My - the mistake - and it was one I was very angry about and fought against, but the Bush administration was in power and then frankly the Obama administration didn't pick up enough on it - we should have done more with that money to help people who were having foreclosures on their property.

SIMON: Mr. Frank, I have to ask, in May, Congress passed bipartisan legislation that loosened some provisions of your own bill so community, regional banks, smaller banks could operate more freely. You endorsed that change. This is at the same time you're on the board of the Signature Bank, which stands to benefit from that change.

FRANK: Well, you left out some - you left out some very salient facts. First of all, I did not endorse it. I consistently said I would've vote against it. I did disagree with those who thought it was a terrible mistake. I don't think it did serious damage. But the most important thing you left out is this - in 2013, long before I had ever heard of Signature Bank, the part of that law that benefited Signature Bank was something that I had announced my support for years, again, before I had even heard of the bank. And the fact is that passing the law as they did preserved most of the regulatory bill - over 90 percent. And by the way, with regard to the biggest banks, there was no loosening whatsoever.

SIMON: Barney Frank, a member of Congress for 32 years, thanks so much for being with us.